Steelcase, Inc. v. Design International Selections, Inc. (DISI),
("DISI") is a corporation existing under
G.R. No. 171995, 18 April 2012
[MENDOZA, J.]
FACTS
Steelcase, Inc. (Steelcase) granted Design International
Selections, Inc. (DISI) the right to market, sell, distribute,
install, and service its products to end-user customers within
the Philippines.Steelcase argues that Section 3(d) of R.A. No.
7042 or the Foreign Investments Act of 1991 (FIA) expressly
states that the phrase doing business excludes the
appointment by a foreign corporation of a local distributor
domiciled in the Philippines which transacts business in its own
name and for its own account. On the other hand, DISI argues
that it was appointed by Steelcase as the latter’s exclusive
distributor of Steelcase products. The dealership agreement
between Steelcase and DISI had been described by the owner
himself as basically a buy and sell arrangement.
ISSUE
Whether Steelcase had been doing business in the Philippines.
RULING
NO.
[T]he appointment of a distributor in the Philippines is not
sufficient to constitute doing business unless it is under the full
control of the foreign corporation. On the other hand, if the
distributor is an independent entity which buys and distributes
products, other than those of the foreign corporation, for its
own name and its own account, the latter cannot be
considered to be doing business in the Philippines. Here, DISI
was an independent contractor which sold Steelcase products
in its own name and for its own account. As a result, Steelcase
cannot be considered to be doing business in
the Philippines by its act of appointing a distributor as it falls
under one of the exceptions under R.A. No. 7042.
In Steelcase, Inc. vs. Design International Selections, Inc., G.R.
No. 171995, 18 April 2012, the Philippine Supreme Court
declared that a foreign corporation doing business in the
Philippines without the requisite license may sue in Philippine
Courts against a Philippine citizen or entity who had
contracted with and benefited by said corporation. In other
words, a party is estopped to challenge the personality of a
corporation after having acknowledged the same by entering
into a contract with it.
Background
Petitioner Steelcase, Inc. ("Steelcase") is a foreign corporation
existing under the laws of Michigan, United States of America
(U.S.A.), and engaged in the manufacture of office furniture
with dealers worldwide. Respondent Design International
Selections, Inc.
Philippine Laws and engaged in the furniture business,
including the distribution of furniture.
Sometime in 1986 or 1987, Steelcase and DISI orally entered
into a dealership agreement whereby Steelcase granted DISI
the right to market, sell, distribute, install, and service its
products to end-user customers within the Philippines. The
business relationship continued smoothly until it was
terminated sometime in January 1999 after the agreement
was breached with neither party admitting any fault. Steelcase
filed a complaint for sum of money against DISI alleging,
among others, that DISI had an unpaid account of
US$600,000.00. Steelcase prayed that DISI be ordered to pay
actual or compensatory damages, exemplary damages,
attorney’s fees, and costs of suit. Among the counter-
arguments raised, DISI alleged that the complaint failed to
state a cause of action and to contain the required allegations
on Steelcase’s capacity to sue in the Philippines despite the
fact that Steelcase was doing business in the Philippines
without the required license to do so. Consequently, it posited
that the complaint should be dismissed because of Steelcase’s
lack of legal capacity to sue in Philippine courts.
The Regional Trial Court (RTC) dismissed the complaint and
granted the temporary restraining order prayed for by DISI.
The RTC stated that in requiring DISI to meet the Dealer
Performance Expectation and in terminating the dealership
agreement with DISI based on its failure to improve its
performance in the areas of business planning, organizational
structure, operational effectiveness, and efficiency, Steelcase
unwittingly revealed that it participated in the operations of
DISI. Despite a showing that DISI transacted with the local
customers in its own name and for its own account, the RTC
stated that any doubt in the factual environment should be
resolved in favor of a pronouncement that a foreign
corporation was doing business in the Philippines, considering
the twelve-year period that DISI had been distributing
Steelcase products in the Philippines. The RTC concluded that
Steelcase was "doing business" in the Philippines, as
contemplated by the Foreign Investments Act of 1991, and
since it did not have the license to do business in the country,
it was barred from seeking redress from our courts until it
obtained the requisite license to do so. Steelcase moved for
the reconsideration of the dismissal but the same was denied.
Aggrieved, Steelcase appealed the case to the Court of
Appeals. The Court of Appeals rendered its Decision affirming
the RTC orders, ruling that Steelcase was a foreign corporation
doing or transacting business in the Philippines without a
license. Steelcase filed a motion for reconsideration but it was
denied by the Court of Appeals.
Steelcase filed a Petition for Review with the Supreme Court.
The issues in the Supreme Court petition are: (a) whether or
not Steelcase is doing business in the Philippines without a
license; and (b) whether or not DISI is estopped from
challenging the Steelcase’s legal capacity to sue.
Supreme Court’s Ruling
The Supreme Court ruled in favor of Steelcase.
Steelcase is an unlicensed foreign corporation not doing
business in the Philippines
According to the Supreme Court, the following acts shall not
be deemed "doing business" in the Philippines: (a) mere
investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the
exercise of rights as such investor; (b) having a nominee
director or officer to represent its interest in such corporation;
(c) appointing a representative or distributor domiciled in the
Philippines which transacts business in the representative's or
distributor's own name and account; (d) the publication of a
general advertisement through any print or broadcast media;
(e) maintaining a stock of goods in the Philippines solely for
the purpose of having the same processed by another entity in
the Philippines; (f) consignment by a foreign entity of
equipment with a local company to be used in the processing
of products for export; (g) collecting information in the
Philippines; and (h) performing services auxiliary to an existing
isolated contract of sale which are not on a continuing basis,
such as installing in the Philippines machinery it has
manufactured or exported to the Philippines, servicing the
same, training domestic workers to operate it, and similar
incidental services.
Based on this list, the Supreme Court said that the
appointment of a distributor in the Philippines is not sufficient
to constitute "doing business" unless it is under the full control
of the foreign corporation. If the distributor is an independent
entity which buys and distributes products, other than those of
the foreign corporation, for its own name and its own account,
the latter cannot be considered to be doing business in the
Philippines.
DISI is estopped from challenging Steelcase's capacity to sue
On this point, the Supreme Court declared that “if indeed
Steelcase had been doing business in the Philippines without a
license, DISI would nonetheless be estopped from challenging
the former’s legal capacity to sue xxx A foreign corporation
doing business in the Philippines may sue in Philippine Courts
although not authorized to do business here against a
Philippine citizen or entity who had contracted with and
benefited by said corporation. To put it in another way, a party
is estopped to challenge the personality of a corporation after
having acknowledged the same by entering into a contract
with it. And the doctrine of estoppel to deny corporate
existence applies to a foreign as well as to domestic
corporations. One who has dealt with a corporation of foreign
origin as a corporate entity is estopped to deny its corporate
existence and capacity.”
Relevance
Although the foreign corporation in this case was declared to
be not doing business in the Philippines, this case,
nonetheless, explicitly declares another exception to the rule
provided in Section 133 of the Corporation Code of the
Philippines that “[n]o foreign corporation transacting business
in the Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene in any
action, suit or proceeding in any court or administrative
agency of the Philippines…” Following the ruling in this case, a
foreign corporation doing business in the Philippines without a
license may maintain suit in the Philippines against a domestic
corporation or person who is party to a contract as the
domestic corporation or person is deemed estopped from
challenging the personality of the foreign corporation.

Applying these rules, the Supreme Court said that DISI was
founded in 1979 and is independently owned and managed. In
addition to Steelcase products, DISI also distributed products
of other companies including carpet tiles, relocatable walls and
theater settings. The dealership agreement between Steelcase
and DISI had been described by the owner himself as a buy
and sell arrangement. This clearly belies DISI’s assertion that it
was a mere conduit through which Steelcase conducted its
business in the country. From the preceding facts, the only
reasonable conclusion that can be reached is that DISI was an
independent contractor, distributing various products of
Steelcase and of other companies, acting in its own name and
for its own account. As a result, Steelcase cannot be
considered to be doing business in the Philippines by its act of
appointing a distributor as it falls under one of the exceptions
under R.A. No. 7042.
PHILIPPINE DEPOSIT INSURANCE CORPORATION vs.
CITIBANK, N.A. and BANK OF AMERICA, S.T. & N.A.,
G.R. No. 170290, April 11, 2012
Facts: Citibank, N.A. (Citibank) and Bank of America, S.T. &
N.A. (BA) are duly organized corporations and existing under
the laws of the United States of America and duly licensed to
do business in the Philippines, with offices in Makati City.
Petitioner Philippine Deposit Insurance
Corporation (PDIC) conducted an examination of the books of
account of Citibank and BA in 1977and 1979 respectively. It
discovered that Citibank in the course of its banking business,
received from its head office and other foreign branches a
total of P11,923,163,908.00 in dollars from September 30,
1974 to June 30, 1977 covered by Certificates of Dollar Time
Deposit that were interest-bearing with corresponding
maturity dates. And BA a total of P629, 311,869.10 in dollars,
covered by Certificates of Dollar Time Deposit that were
interest-bearing with corresponding maturity dates and lodged
in their books under the account Due to Head Office/Branches.
For failure to report the said amounts as deposit liabilities that
were subject to assessment for insurance, PDIC sought the
remittance of deficiency premium assessments for dollar
deposits.
Citibank and BA each filed a petition for declaratory
relief before the Court of First Instance stating that the money
placements they received from their head office and other
foreign branches were not deposits and did not give rise to
insurable deposit liabilities under Sections 3 and 4 of R.A. No.
3591 (the PDIC Charter) and, as a consequence, the deficiency
assessments made by PDIC were improper and erroneous. RTC
ruled in favor of Citibank and BA which reasoned that there
was no depositor-depository relationship between the
respondents and their head office or other branches. Also, the
placements were deposits made outside the Philippines which
are excluded under Section 3.05(b) of the PDIC Rules and
Regulations and Section 3(f) of the PDIC Charter likewise
excludes from the definition of the term deposit any obligation
of a bank payable at the office of the bank located outside
the Philippines.
PDIC argues that the head offices of Citibank and BA
and their individual foreign branches are separate and
independent entities hence not exempt in Section 3(b) of R.A.
No. 3591.
PDIC appealed to the CA which affirmed the ruling of the RTC.
Issues:
1.) Whether or not the dollar deposits are money
placements, thus, they are not subject to the
provisions of Republic Act No. 6426 otherwise known
as the Foreign Currency Deposit Act of
the Philippines.
2.) Whether or not the Philippine branch of a foreign
corporation has a separate legal personality from its
foreign head office for the purpose of PDIC.
Ruling: The court ruled that the funds in question are not
deposits within the definition of the PDIC Charter and are,
thus, excluded from assessment. Pursuant to Section 3(f) of
the PDIC Charter, the term deposit means unpaid balance of
money or its equivalent received by a bank in the usual course
of business and for which it has given or is obliged to give
credit to a commercial, checking, savings, time or thrift
account or which is evidenced by its certificate of deposit, and
trust funds held by such bank whether retained or deposited in
any department of said bank or deposit in another bank,
together with such other obligations of a bank as the Board of
Directors shall find and shall prescribe by regulations to be
deposit liabilities of the Bank; Provided, that any obligation of
a bank which is payable at the office of the bank located
outside of the Philippines shall not be a deposit for any of the
purposes of this Act or included as part of the total deposits or
of the insured deposits. As explained by the respondents, the
transfer of funds, which resulted from the inter-branch
transactions, took place in the books of account of the
respective branches in their head office located in the United
States. Hence, because it is payable outside of the Philippines,
it is not considered a deposit.
The Court in resolving the controversy in the
relationship of the Philippine branches of Citibank and BA to
their respective head offices and their other foreign branches
examined the manner by which a foreign corporation can
establish its presence in the Philippines. It may choose to
incorporate its own subsidiary as a domestic corporation, in
which case such subsidiary would have its own separate and
independent legal personality to conduct business in the
country. In the alternative, it may create a branch in
the Philippines, which would not be a legally independent unit,
and simply obtain a license to do business in the Philippines. It
is apparent that the respondent banks did not incorporate as a
separate domestic corporation to represent its business
interests in the Philippines. Thus, being one and the same
entity, the funds placed by the respondents in their respective
branches in the Philippines should not be treated as deposits
made by third parties subject to deposit insurance under the
PDIC Charter.